analytical procedures 1
In a 2-3 page paper, complete the case below
- Describe the purpose of analytical procedures performed in the planning stage of the audit.
- Uden Supply has projected its 2004 gross profit at 31% of sales despite expectation for some shrinkage in margins. On the basis of Uden’s operating performance in years 2001 – 2003 project your best guess for 2004. Project 2004 based on the incremental changes for each line item over the last three years.
- Udenâ€
s unaudited financial statements for the current year show a 31 percent gross profit rate. Assuming that this represents a misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net income before taxes for 20X4. - Indicate whether you believe that the difference calculated in part (c) is material. Explain your answer. (50-100 words).
Comparative income statement information for Uden Supply Company is presented in the accompanying table.
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UDEN SUPPLY COMPANY |
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Comparative Income Statement |
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Years Ended December 20X1, 20X2, and 20X3 |
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(Thousands) |
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20X1 Audited |
20X2 Audited |
20X3 Audited |
20X4 Expected |
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|
Sales |
8,700 |
9,400 |
10,100 |
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Cost of goods sold |
6,000 |
6,500 |
7,000 |
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Gross profit |
2,700 |
2,900 |
3,100 |
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|
Sales Commissions |
610 |
660 |
710 |
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|
Advertising |
175 |
190 |
202 |
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|
Salaries |
1,061 |
1,082 |
1,103 |
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|
Payroll taxes |
184 |
192 |
199 |
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|
Employee benefits |
167 |
174 |
181 |
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Rent |
60 |
61 |
62 |
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Depreciation |
60 |
63 |
66 |
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|
Supplies |
26 |
28 |
30 |
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|
Utilities |
21 |
22 |
23 |
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Legal and accounting |
34 |
37 |
40 |
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Miscellaneous |
12 |
13 |
14 |
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Interest expense |
210 |
228 |
240 |
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Net income before taxes |
80 |
150 |
230 |
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|
Incomes taxes |
18 |
33 |
50 |
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|
Net income |
62 |
117 |
180 |
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